MoneyWeek Roundup: the government's big lie

The bad news continued this week. Markets around the world got clobbered as investors started to add China, alongside Europe, to their list of trouble zones.

These are certainly panicky markets, says John Stepek in Thursday's Money Morning.

We've known about Europe's problems for a while now. But China's struggles have really surprised the bulls. "Markets have finally woken up to the fact that China is not some sort of perpetual motion machine, but a bog-standard, boom-and-bust-prone economy, just like all the rest."

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The result: very difficult times for investors, says John. "When you are confronted by a sea of red when you look at the stock indices, or when every news channel and newspaper is talking about Armageddon' and Grexit', it's hard not to react." So what should investors do?

Well before you press the sell button' you should write down all your reasons why. If you haven't done so already you should also remember and write down the reasons why you bought a stock in the first place.

"Then ask yourself. "Have the stories changed? Is the stock you bought because "it's cheap" now expensive? Has there been fresh news on the company that undermines your rationale for buying it in the first place?

"Or has a major theme changed? It's as easy to fall in love with a theme as with a stock, particularly if it's been profitable for you in the past. But when the time comes, you have to let go."

Reviewing your portfolio is a good habit and something you should do regularly. "But the main point", says John, "is to slow yourself down. If you're going to sell, it should be for the right reasons not just because the rest of the market is falling."

The turmoil doesn't just have to be about selling, either. "This is also a good time to set up, or update, a watch list. Having a menu of stocks or other assets that you'd like to buy, but you're hoping to get hold of more cheaply, is always handy. It will also help dissipate some of that urge to do something!' that always comes when markets are spiking or plunging."

Indeed, my colleague, Phil Oakley, came up with six great FTSE350 stocksin the latest issue of MoneyWeek. (If you're not already a subscriber, get your first three issues free here.)

Making money whatever the weather

Of course, investing isn't just about rising share prices. One of our newsletter writers has a strategy that performs well in difficult markets like these. Click here to find out more.

The currency ugly contest'

The current crazy state of the markets throws up opportunities for currency traders, says Dominic Frisby in Tuesday's Money Morning.

"Right now, it's hard to be bullish on anything", says Dominic. "My own stance is to hold cash and gold, and take cover. But which form of cash is going to prove least ugly for investors in the months ahead?"

First up, the euro. "Given that the world will end if Greece leaves the eurozone (or at least, that's what some would have us believe), you would have expected the euro to be in some horrible dark place. It should be following the path of the Italian lira or the Greek drachma in the 1970s.

"However, it's not been quite the outright disaster you might have expected. The euro is in a downtrend, yes. It's in a bear market, yes. But for all that, it's still in better shape than it was when it first launched in the distant days of 1999."

As for the future, Dominic thinks a Greek exit would actually be good for the single currency. But until that happens it has further to fall.

When it comes to the US dollar, Dominic is more bullish. "For those with longer-term horizons, the pound versus the dollar is a pretty simple trade. You sell the pound at $2 or just above ideally in the red zone. And you buy at $1.40 or just below in the green." The only tricky part is knowing how long it will take for the currencies to move from trough to peak.

At the moment, with the pound at $1.60, Dominic expects the dollar to prevail. "The bear market in the US dollar ended in 2008. It looks like another deflationary wave is well and truly upon us in which case, the dollar should do well." Dominic has peppered his piece with all manner of useful graphs so click on the link above to read it in full.

Don't write off the PC just yet

This week, Matthew Partridge has been sticking up for the personal computer.

Conventional wisdom in the tech world, says Matthew, is that "the PC's time is over. Smartphones and their bigger brothers, tablet computers, will put an end to clunky desktop computers. Even laptops will be a thing of the past." But he's not convinced.

"Androids and iPhones are great for checking email or Facebook on the run, and iPads are fantastic for reading e-books and making tweaks to existing documents and spreadsheets. So it makes sense that the number of PCs sold in the US is in decline.

"But reports of the death of the PC' have been somewhat exaggerated. They still have an advantage in terms of speed and storage, and for many people, in convenience too. And if people still want PCs, that means the companies that make PC hardware will profit too."

One important PC component is their hard disk drives (HDD). They are more bulky and power-hungry than the snazzy solid-state drives (SDD) used in tablets, but they are also very cheap. "Clearly, if PC sales remain solid, that should lead to more HDDs being sold than perhaps analysts expect", says Matthew. Another boon is that as more bits of the world around us go digital' there will be more demand for storage. By 2015 HDD demand is expected to have doubled from 2010.

"Profit margins in the industry should also benefit from consolidation", says Matthew. "Recent mergers mean that the top two firms, Seagate Technology (Nasdaq: STX) and Western Digital (NYSE: WDC), each control 40% of the market. As a result, Tom Coughlin and Ed Grochowski of Coughlin Associates think that prices and margins, which spiked after floods in Thailand hit supply, will not return to pre-flood levels until 2014 at the earliest."

Matthew examines both companies and offers investors a useful tip, so the article is well worth a further look.

Don't believe the government

Elsewhere, Merryn tackled "the government's big austerity' lie". For a while now Merryn, and the rest of the MoneyWeek team, have been sceptical about how deep the government's cuts really are. Merryn's view has been given a fillip by a report from analysts at Tullett Prebon called Blowing the Whistle on UK Austerity'.

"The truth is that far from being slashed, public expenditures in the UK 'have hardly been reduced at all.' The official numbers show that real spending in 2011-12 was just 1.1% (£8bn) less than in 2009-10. It was also £23bn or 3.4% higher than spending in Labour's last year of office (2008-9). Savage cuts? Hardly."

The deficit the amount we had to the national debt each year - was cut last year, concedes Merryn. From £161bn to £123bn. That might sound good but it's still higher than the £100bn it was in 2008-9.

What's worse, says Merryn, is that spending cuts didn't even play a big part in the deficit reduction. "No, it has been cut via tax rises. On constant values (2010-11) taxes have risen by £30bn since 2009-10. That is 75% of the entire increase in GDP we have seen over the period (£40bn)."

So instead of cutting costs, the government has just throttled the fledgling private-sector recovery. Meanwhile it's talked about cuts so that bond markets are prepared to lend money cheaply. "Of course, actually doing any real cutting is politically all but impossible. But can the government keep the big lie going?" Merryn thinks it will. After all, bond markets have plenty of other, bigger, lies in Europe and China to deal with first.

It's proved a popular topic with the readers, and pretty soon the comment boxes started filling up.

Dr Ray' noted that in real terms the cuts are more significant. "The government's official RPI and CPI figures are bogus and price inflation in the UK is nearer 10% pa. A nominal cut in government spending of 1% is in reality then a real cut of 11%."

Meanwhile Reality Blogger(British)' felt that: "the National debate should be not how much are we spending but what we spend it on and where. We need to spend where we create real growth, real jobs in design, food, manufacturing."

How to avoid mark-to-market mayhem

'Mark to market' is not a phrase that sets pulses racing. But the concept pervades most of the investing world from fund management to derivatives, and even company reporting. It can also trigger panic selling. This week Moneyweek's deputy editor, Tim Bennett, explains what it is and highlights the key traps for investors.

Trade the euro turmoil

Before I go, I should mention the latest article from our spread betting expert, John C Burford. John can profit if markets go up or down. Given current market conditions, his stuff has been attracting a lot of attention.

"These are thrilling times to be a trader", says John in Wednesday's spread betting blog.

"Developments are coming at us thick and fast. It just feels to me that the excitement can only snowball from here. But to make serious money from the markets, a trader must join the winning camp, and sometimes put beliefs to one side. Or better yet, change beliefs!"

With so many markets breaching significant support lines, John felt "spoilt for choice", but decided to cover gold. Why? "It represents a very emotional market and is one of the biggest beneficiaries of the money-printing operations."

As a chartist John is convinced that the price will fall further. To get full value from John's analysis you need to see his graphs and commentary, so click here to read his views in full.

To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds we've listed them below.

Have a great weekend!

MoneyWeek

Merryn Somerset Webb

John Stepek

Tim Bennett

James McKeigue

Matthew Partridge

David Stevenson

This article is taken from the free investment email Money Morning. Sign up to Money Morning here .